Labor market and migration in Miami

KBrief flashback: From April 15 to October 31, 1980, around 150,000 Cubans left their homeland, half of them settled in Miami. Most of them got residence and work permits. As a result, the number of workers in the big city grew by 7 percent in a very short time. The local unemployment rate rose from 5 to 7 percent, but quickly normalized.

The economics professor David Card, who has now been awarded the Nobel Memorial Prize for Economics, examined wage developments in Miami from 1979 to 1985 and compared them with other American metropolises. Simple economic models suggested that wages would generally decline, and particularly sharply for workers who competed directly with Cubans. Card, on the other hand, found that immigration had little impact on wages.

The award from the Norwegian Prize Committee honors less the surprising result than the method that is comparatively new for economics: Card used a natural special event to reach conclusions. The Berkeley researcher, who received half the award, shares it with Guido Imbens (Stanford University) and Joshua Angrist (Massachusetts Institute of Technology). What all three researchers have in common is that they use so-called natural experiments to test theories. Together with the late Alan Krueger (Princeton), Angrist exploited a peculiarity in the American school system to show that more schools produce more income, while statistics specialist Imbens is primarily characterized by new methodological findings.

Machine learning in economics

Card’s second groundbreaking work, in turn, changed ideas about the minimum wage. Also with Krueger, he investigated the effect that the rise in the statutory minimum wage in the state of New Jersey had on employment in the fast-food restaurants compared to neighboring Pennsylvania, where the minimum wages were lower and not adjusted. Contrary to the “classical” theory, they found no negative employment effect; rather, employment increased in the more than 400 fast-service restaurants in New Jersey that were examined. This was also surprising because the wage increase took place during a recession.



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